18 August 2025
Disclosing information about anticipated financial effects of sustainability-related risks and opportunities
Jenny Bofinger-Schuster, member of the International Sustainability Standards Board (ISSB), discusses the disclosures of anticipated financial effects of sustainability-related risks and opportunities required by ISSB Standards and the interoperability with the corresponding disclosure requirements in the European Sustainability Reporting Standards (ESRS).
Because the ISSB does not typically meet in August, it is a good time to pause for reflection on some of the questions companies have about ISSB Standards. Although disclosing information about sustainability-related risks and opportunities is becoming increasingly common, and the connection of such information with financial statements is increasingly established, one topic that has surfaced in my recent discussions with companies is the disclosure of information about anticipated financial effects. Inspired by these conversations, this article aims to provide some deeper insights on the subject.
ISSB Standards set out a global baseline of disclosures about companies’ sustainability‑related risks and opportunities that is useful to investors in making capital allocation decisions. This information includes information that enables investors to understand the effects of sustainability-related risks and opportunities on a company’s financial statements—that is, on the company’s financial position, financial performance and cash flows. Information about both the current effects for the reporting period and the anticipated effects over the short, medium and long term.
Investors are interested in understanding the relationship and connections between information about a company’s sustainability-related risks and opportunities and information in its financial statements. The requirements to disclose current and anticipated financial effects are based on the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD) and are designed to produce information that complements information provided in the financial statements.
How to prepare disclosures on anticipated financial effects applying ISSB Standards
A combination of quantitative and qualitative information is the most useful for making investment decisions. ISSB Standards therefore ask that a company provide both types of information. However, we know that providing such information, particularly quantitative information, can be challenging. Therefore, we have included some mechanisms in ISSB Standards that relieve companies from providing quantitative information in specified circumstances.
For both current and anticipated financial effects, companies do not need to provide quantitative information if:
- the effects are not separately identifiable; or
- the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful.
These two concepts also exist in IFRS Accounting Standards, developed by the International Accounting Standards Board. Therefore, the concepts are familiar to many companies applying these Standards, including companies in the EU.
In addition, companies do not need to provide quantitative information about anticipated financial effects if they do not have the necessary skills, capabilities or resources. This relief is designed to be used by all companies, whether large or small, when needed.
Providing quantitative information about anticipated financial effects can be particularly challenging by virtue of its forward-looking nature. Therefore, we included in ISSB Standards some additional proportionality mechanisms specific to anticipated financial effects.
When preparing disclosures on anticipated financial effects, a company is only required to use:
- all reasonable and supportable information available at the reporting date without undue cost or effort; and
- an approach commensurate with the skills, capabilities and resources available to the company.
Access new educational material
Access new IFRS Foundation educational material: Disclosing information about anticipated financial effects applying ISSB Standards.
Anticipated financial effects about climate-related risks and opportunities: relationship between ISSB Standards and ESRS
In July 2023 the European Commission adopted the first set of ESRS for use by EU companies. This first set of ESRS is highly aligned with ISSB Standards for disclosures about climate-related risks and opportunities. The ESRS‒ISSB Standards Interoperability Guidance jointly published by EFRAG and the IFRS Foundation in May 2024 describes how a company can avoid duplication in reporting, including for disclosures of information about anticipated financial effects.
In February 2025 the European Commission launched an Omnibus Programme to simplify several sustainable finance regulations, including the Corporate Sustainability Reporting Directive (CSRD) and the associated standards, ESRS. As a result, in July 2025 EFRAG published proposed simplifications to ESRS. The proposed simplifications include revisions to the requirements to disclose information about anticipated financial effects, as summarised in Parts 1 and 2.
Part 1—Aligned requirements in ISSB Standards and ESRS
Like a company applying ISSB Standards, a company applying current ESRS is required to provide qualitative and quantitative information about the effects of climate (and other sustainability-related risks and opportunities) on its financial position, financial performance and cash flows. However, a company applying current ESRS cannot use mechanisms in ISSB Standards in relation to anticipated financial effects that enable the company to provide only qualitative information in some circumstances and meet the requirements in current ESRS.
For companies applying ISSB Standards
The requirements to provide information about anticipated financial effects are in paragraphs 15‒21 of IFRS S2 Climate-related Disclosures.1. Although the default requirement is for a company to provide both qualitative and quantitative information about anticipated financial effects, ISSB Standards include (permanent) reliefs.
In particular, a company does not need to provide quantitative information if:
- the effects are not separately identifiable;
- the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful; or
- the company does not have the necessary skills, capabilities or resources to provide that quantitative information.
In preparing information about anticipated financial effects, a company uses:
- all reasonable and supportable information available at the reporting date without undue cost or effort; and
- an approach commensurate with the skills, capabilities and resources available to the company.
For companies applying current ESRS
The requirements to provide information about anticipated financial effects that correspond to the requirements in IFRS S2 are in paragraph 48(e) of ESRS 2 (Disclosure Requirement SBM-3). ESRS include (transitional) reliefs so that a company does not need to provide:
- information about anticipated financial effects for the first year of preparation of the sustainability statement; and
- quantitative information for the first three years of preparation of the sustainability statement, if it is impracticable to prepare quantitative disclosures.
After this time, a company is required to provide quantitative information about anticipated financial effects. No alternative is provided allowing for the provision of qualitative information.
Proposed changes to ESRS (July 2025)
The proposed changes to paragraph 48(e) of ESRS 2 (Disclosure Requirement SBM-3) are based on two alternative options:
- Option 1—A company applying proposed revised ESRS would be required to provide quantitative information about anticipated financial effects subject to similar proportionality mechanisms to those available to companies applying ISSB Standards allowing a company to instead provide qualitative information on a permanent basis. However, the relief related to the skills, capabilities and resources available to the company included in IFRS S2 is still not proposed to be included.
- Option 2—A company applying proposed revised ESRS would not be required to provide quantitative information about anticipated financial effects.
Part 2—Additional requirements in ESRS
A company applying current ESRS needs to provide additional disclosures about anticipated financial effects to comply with both ISSB Standards and ESRS.
For companies applying ISSB Standards
Paragraph 29(b)‒(d) of IFRS S2 requires a company to disclose the amount and percentage of assets or business activities:
- vulnerable to climate-related transition risks;
- vulnerable to climate-related physical risks; and
- aligned with climate-related opportunities.
For companies applying current ESRS
Paragraphs 66‒69 of ESRS E1 (Disclosure Requirement E1-9) require a company to disclose:
- anticipated financial effects from material physical risks;
- anticipated financial effects from material transition risks; and
- potential to benefit from material climate-related opportunities.
However, more specifically ESRS require a company to provide additional detailed information (such as amount, proportion and location, and information about revenue and other items) about financial statement line items affected by climate-related transition and physical risks and the potential to pursue climate-related opportunities, with reconciliation to the relevant line items or notes in the financial statements.
Proposed changes to ESRS (July 2025)
The proposed changes to ESRS would renumber these requirements as paragraphs 39‒42 of ESRS E1 (Disclosure Requirement E1-11), deleting requirements to reconcile information to the relevant line items or notes in the financial statements and proposing new reliefs following the options proposed for changes to paragraph 48(e) of ESRS 2. Therefore, for example, following Option 2 the incremental information would become optional for companies to provide.
How I see the implications of the proposed changes to ESRS
Option 1 for paragraph 48(e) of ESRS 2 would enhance interoperability between ESRS and ISSB Standards and reduce the reporting burden for companies preparing information about anticipated financial effects applying ESRS. However, introducing the relief related to the skills, capabilities and resources available to the company and fully aligning the wording of the other proportionality mechanisms with that in ISSB Standards (which is not the case in the current proposed changes to ESRS) would benefit companies and significantly enhance interoperability between the two sets of standards.
In contrast, Option 2 would be detrimental to interoperability between ESRS and ISSB Standards and make information important for investors non-mandatory. This option also presents a risk that companies would need to perform additional work to comply with both ISSB Standards and ESRS because quantitative information about anticipated financial effects would not be required by ESRS resulting in omission of information included in the global baseline.
Disclosure Requirement E1-9 already requires disclosures that are more specific and incremental to those required by IFRS S2. Providing optionality for these specific disclosure requirements about a company’s anticipated financial effects in paragraphs 41 and 42 of the proposed Disclosure Requirement E1-11 would not affect interoperability with ISSB Standards because the level of specificity is beyond what is required by ISSB Standards. Making these disclosures optional is therefore a means of reducing burden for companies while not detrimentally affecting interoperability.
Final thoughts
Interoperability between ISSB Standards and ESRS remains a high priority to support efficient reporting for companies and the provision of comparable information for investors. Quantitative information about anticipated financial effects of sustainability-related risks and opportunities is a crucial aspect of investor demands for decision-useful information. The revision of ESRS offers an opportunity to enhance alignment with ISSB Standards on this important topic. There is also an opportunity, focusing on making the quantitative disclosures requirement in E1-9 optional, to enhance interoperability while reducing the reporting burden for those applying ESRS. However, if the disclosure of all quantitative information about anticipated financial effects is made optional in ESRS, comparable investor-relevant information will be unavailable when ESRS are applied and companies would need to perform additional work to comply with both ISSB Standards and ESRS.
Comment on the proposals
Companies can provide input to EFRAG’s consultation until 29 September 2025. For more information, see our Jurisdictional sustainability consultations page.
This article is not part of IFRS Standards and does not add to or otherwise change the requirements in the Standards. It was developed to aid stakeholders’ understanding of our Standards. Views expressed in the document do not necessarily reflect those of the International Accounting Standards Board, the International Sustainability Standards Board or the IFRS Foundation. The document should not be relied upon as professional or investment advice.
